How much your holiday debt will really cost you

Repaying Holiday DebtWith Black Friday and Cyber Monday behind us, the holiday retail season is now in full swing. We have reached that time of year when retailers finally go into the black and become profitable while many Americans go into the red and spend more than their income level might allow. Unfortunately, our insatiable appetite for the latest gadgets and goodies leads many consumers to significantly overspend during the holiday season and technology is only making it easier.

The National Retail Federation reports Americans spent an average of $730 on gifts, food, decorations and other holiday-related purchases in 2013. While black Friday got off to a bit of a slower start than last year, Cyber Monday sales were up over 17 percent from 2013. Preliminary holiday spending surveys suggest that overall spending in 2014 should be similar to last year with more purchases occurring online. In fact, Gallup's latest survey finds U.S. adults projecting they will spend an average of $720 on gifts this year with nearly 25 percent planning to spend $1,000 or more. Big spending can lead to big problems after the holidays. The sad reality is that excessive spending; finance costs and interest expenses can cause many consumers to end up paying for 2014 holiday expenses for years to come.

The true cost of debt

For those consumers who overextend themselves and choose to finance their holiday spending with store credit or traditional credit cards, interest costs can add up quick. So what is the true cost of financing your purchases this season? According to, the average interest rate on a cash-back credit card is 16.44 percent. Assuming you finance $720 in spending and make minimum payments of $20 per month, you could end up paying this year’s holiday expenses for more than 4 years. As they say, financing your holiday spending with debt is the gift you keep on paying.

How to avoid a holiday spending hangover

Having a plan to handle the spending demands of the holidays can be tricky. First, start out by establishing spending limits. While it is easier said than done, it is critical to avoid spending more than you can afford. Developing a holiday budget and holding yourself accountable can help. Consider using cash for most of your purchases and avoid the temptation to use new or existing credit cards to finance purchases. Regardless of the extra 10 percent savings you are offered for opening a new account, avoid establishing new store credit cards.

It is also important to be careful making online purchases, too. While bargain hunting online allows consumers to quickly comparison shop and receive potentially better prices, online retailers have made it so simple and turnkey to complete your purchase that it is easy to forget that you even spent any money! Amazon’s one-click purchase process is a great example of it being simply too easy to overspend. This patented process allows you to complete your transaction and have the credit card on file billed and the package shipped in just one click. While no doubt convenient and very strategic from a business standpoint, be careful not to click your way to excessive debt during this shopping season.

Avoid falling behind

So how significant is the debt problem today? According to Federal Reserve statistics, total outstanding credit card debt in the United States is nearly $880 billion with the average American household having $7,274 in credit card debt. Remember, the more debt you have, the larger your payments become and the harder it is to keep your head above water. Unfortunately, this leads many consumers to mishandle their debt, causing significant damage to their credit score and their financial position. Keep in mind that a lower credit score can lead to higher interest costs which in turn may lead to higher levels of debt – a truly vicious cycle.

Getting through the holiday season without overspending or incurring substantial debt may be a challenge. Technological advancements in retail make it more convenient than ever to spend more than you may have planned. Consider taking a proactive approach to developing a holiday budget in order to keep your spending in-check. Remember, you do not want to pay for 2014 holiday gifts after they become obsolete. Consider visiting for more information on your credit score. Since everyone’s financial situation is unique, consider speaking to your financial and legal adviser to determine the most appropriate approach for you.


Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.